July 8, 2024: India’s automotive sector stands at a critical juncture, with the need for a robust and forward-thinking electric vehicle (EV) policy becoming ever more urgent. As the world shifts towards sustainable mobility, Indian automakers are eager to accelerate their transition to electric vehicles, but they face significant hurdles that can only be overcome with comprehensive government support.
India is gearing up to amend its electric vehicle (EV) policy to support automakers with existing investments in the country. This move comes amidst uncertainty over Tesla’s plans to establish a manufacturing facility in India. The current policy favors new investments exclusively, aiming to accelerate local production of high-end EVs. Discussions are underway to address concerns raised by automotive manufacturers.
Government sources indicate potential revisions that could extend incentives to plants producing both internal combustion engine vehicles and EVs, facilitating larger investments and scalability. Six major car manufacturers, including Volkswagen-Skoda, Hyundai-Kia, and VinFast, have shown interest in the Scheme for Manufacturing of Electric Cars (SMEC).
The Current Scenario
India has made notable strides in the adoption of electric vehicles, with a growing market for both electric two-wheelers and four-wheelers. However, the pace of adoption remains slower compared to global standards. The lack of a cohesive and supportive policy framework is a significant barrier.
India is gearing up to amend its electric vehicle (EV) policy to support automakers with existing investments in the country. This move comes amidst ongoing uncertainty over Tesla Inc.’s plans to establish a manufacturing facility in India. The current policy, aimed at accelerating local production of high-end electric vehicles, presently favors new investments exclusively. Discussions are underway to address key concerns raised by automotive manufacturers.
Government sources indicate potential revisions that could extend incentives to plants producing both internal combustion engine vehicles and electric vehicles, facilitating larger investments and scalability for automakers. Approximately six major car manufacturers, including Volkswagen-Skoda, Hyundai-Kia, and VinFast, have shown interest in the Scheme for Manufacturing of Electric Cars (SMEC).
Automakers have highlighted two primary issues: the need to acknowledge existing investments and include facilities manufacturing traditional petrol and diesel vehicles alongside EVs. They argue that the current EV market share in India’s passenger vehicle segment is modest, making significant investments challenging to justify. No automaker has officially confirmed participation in the EV scheme since its announcement in March.
Under SMEC, the government plans to permit imports of fully built EVs valued at a minimum of $35,000 with a 15% import duty waiver for up to five years, contingent on a minimum $500 million investment in new manufacturing plants.
In April, Tesla CEO Elon Musk postponed a scheduled visit to India, where expectations were high for an announcement regarding Tesla’s local EV manufacturing plans.
“As Tesla delays commitments to local manufacturing, consultations are exploring ways to make the policy more inclusive for traditional automakers,” stated a source familiar with the discussions. “This could include allowing investments in facilities producing both ICE and EVs.”
Initially designed for new EV manufacturers, SMEC currently limits incentives to greenfield plants established within three years of government approval, with no provision for retrospective investment consideration.
“Adjustments are being considered to broaden the scheme’s appeal, potentially retroactively recognizing investments in high-end EV manufacturing,” explained a senior official involved in policy development.
A proposed cutoff date for pre-approval investments would make firms like VinFast eligible for SMEC incentives. VinFast has already commenced construction on a new facility in Tamil Nadu and plans to invest $500 million over the next five years.
Government officials are finalizing standard operating procedures for SMEC implementation and plan to conduct a second round of consultations with industry stakeholders to address concerns and finalize guidelines.
“The stringent localization requirements under SMEC pose challenges, particularly for components like batteries and semiconductors, where the Indian supplier ecosystem is still developing,” noted an official familiar with the discussions.
Despite these challenges, India’s market for vehicles priced above $30,000 (approximately Rs 25 lakh ex-showroom; about Rs 30 lakh on-road) is growing, driven by economic expansion and rising consumer purchasing power. The government expects to open the SMEC application window shortly after finalizing the policy guidelines.
EV Policy in India : Key Areas for Policy Enhancement
Incentives for EV Manufacturing: Increased financial incentives for manufacturers can stimulate domestic production of EVs. This includes tax benefits, subsidies, and support for research and development.
Improved Charging Infrastructure: A widespread and reliable charging infrastructure is crucial for the widespread adoption of electric vehicles. Government investment in charging stations across urban and rural areas can alleviate range anxiety among potential EV buyers.
Consumer Subsidies: Direct subsidies for consumers purchasing electric vehicles can make EVs more affordable and attractive. This can significantly boost market demand and encourage more consumers to make the switch from traditional internal combustion engine vehicles.
Public Awareness Campaigns: Educating the public about the benefits of electric vehicles, both in terms of cost savings and environmental impact, can drive consumer interest and acceptance.
Industry experts and stakeholders have been vocal about the urgent need for policy reforms. “The transition to electric mobility is not just about reducing emissions; it’s about securing India’s place in the future of global automotive markets,” says an analyst at an automotive consultancy firm.
Government Initiatives
While the Indian government has launched several initiatives to promote electric mobility, including the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, industry leaders argue that more needs to be done.
“FAME has been a good start, but we need a more aggressive approach,” said, an auto industry veteran. “Countries like China and the United States are far ahead in this race. India must step up its game.”
The next few years are critical for India’s automotive sector. With global markets moving rapidly towards electric mobility, Indian automakers must not only keep pace but strive to lead. This requires visionary leadership, strategic planning, and above all, robust government support.
As India gears up to embrace a greener future, the call for a comprehensive and upgraded EV policy grows louder. The path to sustainable mobility is fraught with challenges, but with the right policies in place, India can drive forward confidently into an electric future.
